'Misleading' Standard hit with heavy fine by FSA
Fund sold as 'low risk' cash investment for savers contained risky bonds
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Your support makes all the difference.Standard Life was yesterday hit with a fine of £2.45m by the City watchdog fine for "misleading" thousands of customers who were nearing retirement about the investment risks in one of its funds.
The Financial Services Authority also said that the penalty – the first significant one imposed on a major financial company this year – should be seen as evidence of the "get-tough" policy it promised last year.
Standard Life was found to have wrongly targeted tens of thousands of investors for a £2.2bn pension fund. Many were close to retirement, and therefore looking for a safe place to invest their money.
But in a harshly worded statement, the FSA said that marketing material issued by the Edinburgh insurer for its Pension Sterling Fund was neither clear nor fair and would have been misleading to customers. It said the material claimed that the fund was invested wholly in cash, when its portfolio contained "floating rate notes", a type of bond with a variable interest rate.
This meant that the 98,000 people who had invested in what they believed to be a very low-risk fund were at serious risk of losses if markets turned against the fund. The watchdog said this was demonstrated by a 4.8 per cent fall in its value, wiping approximately £100m from investors' savings last January.
Standard Life then paid a total of £102.7m into the fund to restore the value of their holdings to the position they would have been in prior to the fall in the unit price. However, the FSA ruled that a fine was needed to demonstrate to the industry that misleading marketing was unacceptable. It also identified "failures of communication" within Standard Life after concerns about the marketing were raised by Standard Life Investments, the company's fund management arm. These were not acted upon.
Margaret Cole, the director of enforcement and financial crime at the FSA, said: "The FSA takes the issue of misleading financial promotions very seriously and the fine announced today demonstrates our commitment to the principle of credible deterrence. It is critical that consumers are given an accurate understanding of the nature of investment products and the risks involved. Throughout 2010 and beyond, the FSA will continue to take strong action when a firm's financial promotions fall short of the requirement to be 'clear, fair and not misleading'."
The fine will come as an embarrassment to Standard Life, which has sought to project an image of probity and security. The company has recently been shaking up its top team under David Nish, the former finance director who replaced Sandy Crombie as chief executive after a lengthy search.
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